The president of the Eurogroup, Paschal Donohoe, admitted on Friday 9 September in Prague that there is a “risk of recession” for the euro area due to the repercussions of the Russian invasion of Ukraine.
“We recognise that there is a risk for the future”, but the fundamentals of our economy remain sound, Donohoe said, citing the current low level of unemployment. He referred to the ECB’s baseline scenario, unveiled the day before, which continues to forecast growth (0.9% of GDP in 2023) in the euro area provided Russia does not halt its hydrocarbon deliveries to the EU (see EUROPE 13017/13).
Aware of the impact of soaring prices, particularly energy prices, on purchasing power, the euro area finance ministers have said they want to coordinate their emergency budgetary measures, which together would already amount to 1% of GDP, to deal with this inflationary shock.
“We agree that we must reduce inflation. Failure to do so will make our citizens, the people of Europe, poorer for longer”, Donohoe said.
Asked about the fact that these emergency measures could also fuel inflation by supporting consumption, Mr Donohoe said the answer lay in the “scale and design” of the budgetary response, including targeting support to the most vulnerable businesses and households.
These measures must also be “temporary”, added the European Commissioner for Economy, Paolo Gentiloni. According to him, fighting inflation will also limit the second-round inflationary effects, namely wage increases.
From a budgetary point of view, “the ‘whatever it takes’ would not be the right response in the fight against inflation”, French Minister Bruno Le Maire told EUROPE.
Liquidity to energy companies in difficulty. ECB President Christine Lagarde said that in the fight against rising prices, monetary and fiscal policies should “work hand in hand”.
She considered it “important” that “targeted” budgetary measures provide liquidity to “solvent” energy operators, as decided by “Sweden” and “Finland”, to prevent bankruptcy and preserve financial stability.
“Ideally, at the European level, Member States should adopt a common approach”, she said, while warning against easing prudential requirements for central clearing houses and counterparties in derivatives markets.
Gentiloni said the EU institution would reopen a consultation on the prolongation of the state aid regime in crisis situations “in the coming days”. At the same time, volatility in energy markets requires the possibility of Commission intervention, he added. (Original version in French by Mathieu Bion)